The Great Cross-Border Bank Deleveraging: Supply Constraints and Intra-Group Frictions
IMF Working Papers, September 25, 2014
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- The Great Cross-Border Bank Deleveraging: Supply Constraints and Intra-Group Frictions
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Bibliographic details
- Authors: Eugenio M Cerutti, Stijn Claessens
- Published: September 25, 2014
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781498354783.001
Summary
- International banks greatly reduced their direct cross-border and local affiliates’ lending as the global financial crisis strained balance sheets, lowered borrower demand, and changed government policies.
- Using bilateral, lender-borrower country data and controlling for credit demand, reductions largely varied in line with markets’ prior assessments of banks’ vulnerabilities.
- Banks’ financial statement variables and lender-borrower country characteristics played minor roles.
- Evidence indicates that moving resources within banking groups became more restricted: drivers of reductions in direct cross-border loans differ from those for local affiliates’ lending, especially for impaired banking systems.
- Home bias induced by government interventions affected both direct cross-border lending and local affiliates’ lending equally.
Key Findings and Evidence
- Reductions in cross-border and affiliate lending were driven primarily by markets’ prior assessments of banks’ vulnerabilities.
- Financial statement variables of banks had only minor explanatory power for the observed reductions.
- Lender-borrower country characteristics were minor contributors to the variation in reductions.
- Distinct drivers for direct cross-border loan reductions versus local affiliate lending reductions point to increased restrictions on moving resources within banking groups.
- Government interventions that induced home bias affected both types of lending equally.
Methodology (concise)
- Data: bilateral, lender-borrower country data.
- Approach: analysis controls for credit demand to isolate supply-side drivers of deleveraging.
- Comparative focus: contrasts direct cross-border lending with local affiliates’ lending, and examines differences for impaired banking systems.
Policy Implications and Interpretations
- Market assessments of bank vulnerability are central to understanding cross-border deleveraging; policies addressing market perceptions could influence cross-border credit flows.
- Constraints on intra-group resource movements warrant attention, particularly in impaired banking systems where local and cross-border channels behave differently.
- Government interventions that increase home bias can reduce both cross-border lending and affiliate lending, suggesting trade-offs for policymakers aiming to stabilize domestic banking sectors.
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